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Warren Buffett's Secrets of trading in shares

Raining Money

The legend of the stock market, one of the most successful portfolio investors in the history, the man to whom supernatural visionary abilities are attributed ... The principles of Warren Buffett, who in 2015 has celebrated his 85th birthday with the wealth of over 70 billion dollars, still work effectively, and not only in the stock trading.

First Lesson

Warren's father was a successful trader in his times, so it is not surprising that the future billionaire made his first attempt to make money from trading stocks as early as at the age of 11. He will remember the result of that deal for a lifetime.

Here is how it was. Together with his older sister the boy bought three shares at $38 each. As it often happens, the price immediately dropped $10, then soared to $40. Of course, Warren hastened to get rid of the shares, receiving a profit of about 5 "bucks". And the share continued to grow, reaching the mark of $200 in a week.

So at a very young age, Buffett learned from his own experience about the inadmissibility of panic and rash decisions at the stock exchange, as well as understood the benefits of long-term investment. For example, he is still the owner of Berkshire Hathaway, which has been purchased in 1965. One thousand dollars invested in BH stocks would be transformed into 5 million during this time!

First of all the "foundation"

However, the principle "buy and hold" is not the only stock trading strategy that Buffett uses. Indeed, the average term of securities holding in his portfolio is 10 years. But on the stock exchange - as well as in business in general - the terms are not as important as the choice of a suitable financial instrument. And Warren Buffett has no superior in this.

Before proceeding to the purchase of a company, he carefully examines the state of affairs both in the investee, and in the economic sector in general. "The price is what we pay. And the value is what we receive", says Buffett. Thus, when investing in the undervalued assets, it is fair to expect higher prices in the future. It is obvious that Buffett sets the greatest value to the fundamental analysis when trading in shares on the stock market.

"When the Company is doing good, in the end the shares have to follow this trend," - says Buffett. In conjunction with other billionaire's principles - "Do not invest in a business which you do not understand" – this, as we see, brings dramatic results.

The simple truth

From Buffett's public statements it is possible to create a valuable tool for any trader and investor, if desired. The richest man in the world is willing to share the secrets of his success.

  • "Today you cannot get income from yesterday's growth". Indeed, the upward trend does not guarantee that the share price will continue to grow. The price can dramatically turn around immediately after the transaction settlement, and it makes no difference that it grew up for a whole year.
  • "Be afraid when others are greedy. Be greedy when others are afraid". All traders who want to avoid the "crowd influence" should learn this advice. If you follow the crowd in the market - forget about profits. Here the majority rarely appears to be on velvet. Learn to think independently.
  • "If you cannot calmly watch a 50 percent drop in your shares, you have nothing to do in the market." The wise truth that warns us about the need for adequate capitalization and a strong influence of the fear on the trade. The trader must have patience and nerves of steel.
  • "Buy only what you will be happy to hold if the market closes for 10 years." As we have seen, Buffett is not a supporter of short-term speculations - and does not advise it to others. "Never is the best period for the sale of shares", - he likes to say.
  • "The main secret is to buy good shares in due time and hold them until they are well." This would seem to contradict the previous statement. But first, Buffett did manage to choose the securities that are good in the long run. And secondly, he never hesitated to get rid of bad assets in his portfolio.

No doubt Buffett is a brilliant stockbroker of modernity. Note, however, that even he did the annoying mistakes. So, in 2005, he lost about a billion dollars in the Forex market through unsuccessful investment of funds with his eye to a drop of the dollar against the euro. However, generally his holding received profits - another valuable lesson about the need to diversify the portfolio assets. It is naturally, because Buffett has invested only a certain part of his capital in the foreign exchange market.

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RISK WARNING: Trading of complex financial products, such as Stocks, Futures, Foreign Exchange ("Forex"), Contracts for Difference ("CFDs"), Indices, Options, or other financial derivatives, on "margin" carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading these markets, and seek advice from an independent financial advisor if you have any questions or doubts. Please carefully read our full "Risk Disclosure" and "Risk Disclosures for Financial Instruments & Investment Services". FXFINPRO Capital is the trading name of PFX Financial Professionals Limited, a limited liability company formed under the laws of Cyprus, registered with the Registrar of Companies in Nicosia, Cyprus, under nr. HE 237840 and regulated by the Cyprus Securities and Exchange Commission with license number 193/13.
The CIF license of PFX Financial Professionals Ltd has been suspended by the Cyprus Securities and Exchange Commission until the 24th of December 2016. Please click here